Costs disclosure obligations and consequences of not complying: part 1

Here begins a series of posts on costs disclosure obligations under the Legal Profession Act, 2004, and the consequences of not complying with them.  It is a work in process, and I would be grateful for any experiences of this area of the law you might have, and any authorities of interest which I have not included.

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The legislation
We have had costs disclosure obligations mandated by legislation for a long time now.  The Legal Practice Act, 1996 came into operation on 1 January 1997, and applied to matters in which the solicitor was retained after that date, and to costs agreements made after that date: cl 18, Schedule 2.  There is a similar regime under the Legal Profession Act, 2004, which came into force on 12 December 2005 but, as we will see, the differences are kickers. The Legal Profession Regulations, 2005 contain provisions relevant to about the costs disclosure and bill disclosure regimes alike.

The 1996 Act continues to apply to all matters in which the lawyer was retained in or after 1997 and instructions were first received before 12 December 2005, regardless of when the costs agreement was entered into.

Where counsel were first briefed after 12 December 2005, but solicitors were retained before that, the 1996 Act continues to apply both to the solicitors’ retainer and the barrister’s brief.  See cl. 3.1 of Schedule 2 of the 2004 Act.  (A similar transitional provision was to be found in the 1996 Act.)

The Fair Trading Act, 1999 has a relevance too.  Even in those cases where the Legal Profession Act, 2004 does not specify consequences of non-compliance as having application, VCAT has proved creative in fashioning remedies under the Fair Trading Act for such non-compliance, as we will see below.

Now, of course, we may be on the verge of a new bit of legislation: see the draft Legal Profession National Law on the website of COAG’s National Legal Profession Reform Project.  Though the disclosure obligations are expressed in greatly attenuated language, they are not necessarily any less onerous, and the consequences of non-compliance are even more extreme: non-compliance with disclosure would void the associated costs agreement, leaving the lawyers to recover fees on scale, and then only after what used to be called a taxation: proposed s. 4.3.7(5). (Incidentally, the implications of proposed section 4.3.5 are fascinating:

‘A law practice must not act in a way that unnecessarily results in increased legal costs payable by a client, and in particular must act reasonably to avoid unnecessary delay resulting in increased legal costs.’)

Who must give disclosures?

Obviously, solicitors must give disclosures to their clients, and barristers engaged directly by clients on a direct access basis stand in the same position vis-à-vis their clients.  But so too must barristers give disclosures to solicitors, as must other lawyers who are retained by the client’s principal solicitors, like town agents and costs consultants.  The obligation does not seem to be predicated on an enquiry by the principal solicitor. The obligation to give disclosures is cast on ‘law practices’.  So it is cast on the company in the case of an incorporated practitioner, and on the partners in the case of a firm.

To whom must disclosures be given?

Costs disclosures must be given to ‘clients’ (s. 3.4.19) and, to the extent relevant to ‘associated third party payers’, to them as well (s. 3.4.18A).  The former are defined as follows:

‘client includes a person to whom or for whom legal services are provided’ (s. 1.2.1).

I cannot envisage any other person who might be a client so as to justify the inclusive definition. Evidently, though, disclosures are to be given to a broader class of person than those law firms have either a retainer and/or costs agreement with.

‘Third party payers’ are non-clients who are under a legal obligation to pay some or all of the legal costs for legal services provided by the client: s. 3.4.2A.  The obligation may arise under contract, pursuant to legislation, or ‘otherwise’ (perhaps pursuant to Court order): sub-s. (2).  All third party payers may apply for taxation of a bill, but the disclosure obligations to clients are extended only to ‘associated third party payers’.  They are third party payers who owe an obligation to the lawyers directly to pay their fees, as opposed to owing an obligation to the client to indemnify  the client’s liability to the lawyers for fees (a ‘non-associated third party payer’). Examples, depending on the parties’ contractual relationships, may include:

  • litigation funders;
  • liability insurers who hire lawyers to conduct insureds’ defences;
  • a brother who hires a lawyer to get his sister out of jail.’
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